There is great concern currently for ascertaining what is wrong with the U.S. economy that is preventing it from achieving a full recovery from the recession of 2009. Below is material relevant to that question.

Background Information

• According to the latest estimates of the Bureau of Economic Analysis of the Department of Commerce the U.S. economy in the second quarter of 2011 was producing final goods and services at a rate of almost $15 trillion per year. That output was purchased by consumers, governments, business investors and foreign buyers. Consumers were purchasing at a rate of $10.7 trillion per year. This by far is the largest component of demand for U.S. output. Next in magnitude is the $3 trillion purchased by local, state and federal governments. Foreign buyers purchased U.S. goods and services at a rate of $2.1 trillion per year, but Americans purchased foreign goods and services at a rate of $2.7 trillion per year. Those imports show up in the purchases by consumers, governments and business investors and must be deducted. The last component of demand for U.S. output is business investors. They purchased U.S. goods and services at a rate of $1.9 trillion.

In order to see what is wrong with the U.S. economy now it is necessary to make comparison between the present and the past. To do this it is necessary to utilize the same prices year after year. Currently 2005 prices are used for making comparisons between years.

• The graph below shows the record of the components of demand for U.S. goods and services in 2005 prices from the first quarter of 2004 to the second quarter of 2011. Imports are shown as a negative quantity because their value must be deducted from the components of demand. They are already deducted in the computation of GDP.
  

  A careful examination of the above graph shows that the one component that has declined the most from its previous high, both in absolute amount and percentagewise, is private business investment.

• Business investors have to have some confidence that such things as taxes and regulations are not going to change over the future of proposed investments. In the fall of 2008 there was the crisis in the financial markets. There was also the election of a president whose relevant experience for the presidency was nihl, whose academic records were sequestered and the financing of whose education was mysterious. To make matters worse that president copied some of the slogans of Huey Long of Louisiana without apparently realizing that Huey Long was a ruthless dictator. Then to make matters much, much worse that president began appointing a flock of extra-constitutional advisors. The media called those thirty-some advisors Czars but the more appropriate Russian term would be Commissars. Those commissars were strongly leftist, some even belonged to Communist parties.
• Is it any wonder that corporate executives have qualms about making major investments with those commissars in power. The net result is that business investment fell; and fell like a rock in the first two quarters of 2009. The graph below shows the record.
  
• This collapse of investment is what produced the recession. Investment fell off by $685.5 billion ($2005) between the first quarter of 2008 and its low point in the second quarter of 2009. The full extent of the drop in investment from its high point in the second quarter of 2007 was 795.8 billion No amount of twiddling by the government was going to compensate for the loss of $795.8 billion.

  Investment rose from its low point in the second quarter of 2009 but it is still $414.9 billion ($2005) below its high point.

• Business has every reason to be suspicious of the agenda of Barrack Obama. Consider the advisors he appointed. Some have left but this is the lineup business saw soon after Obama came into office.
  • Regulatory Commissar –

    
    Cass R. Sunstein
    "In what sense is the money in our
    pockets and bank accounts fully ‘ours’?"

  • Energy and Environment Commissar –

    
    Carol Browner
    From 1988 to 1991, Browner worked as
    legislative director for Senator Al Gore

  • Climate Commissar –

    
    Todd Stern

  • Car Commissar – Ron Bloom
  • Great Lakes Commissar – Cameron Davis
  • Green Jobs Commissar –

    
    Anthony "Van" Jones

  • Guantanamo Closure Commissar – Daniel Fried
  • Pay Commissar – Kenneth R. Feinberg
  • Science Commissar – John Holdren
  • Stimulus Accountability Commissar – Earl Devaney
  • TARP Commissar – Herb Allison
  • Terrorism Commissar – John Brennan
  • Urban Affairs Commissar – Adolfo Carrion Jr.
  • Technology Commissar – Aneesh Chopra

  The list goes on and on. Thirty two have been identified but there are probably more, perhaps forty. The U.S. Consitution provides for the advisors to the president having to be approved by Congress. Almost all of these were not submitted to Congress for approval. How would Congress have approved of, for example, Van Jones, the Green Jobs Commissar, who stated in an interview with the East Bay Express

  "By August, I was a communist." In 1994, the young activists formed a socialist collective, Standing Together to Organize a Revolutionary Movement, or STORM, which held study groups on the theories of Marx and Lenin and dreamed of a multiracial socialist utopia.

  Fundamentally the Commissars reflect the same delusion that prevailed in the early days of the Soviet Union; i.e., that a modern industrial economy can be run efficiently by a small elite. Is it any wonder that at least some of the corporate decision-makers would have qualms about making major investments in such a political environment?

  In the summer of 2011 Barack Obama felt free to start campaigning for the 2012 elelction. Supposedly the U.S. Presidency is a demanding job. For him to abandon the presidency for campaigning reveals that the presidency is being run by his band of thirty something commissars. That does not inspire much confidence in the future of the country. Also his form of campaigning largely consists of buying votes with taxpayers' money.

• Current Growth

  On August 26th the Bureau of Economic Analysis (BEA) published its second estimate of the real GDP for the second quarter of 2011. According to that estimate the real GDP of the U.S. increased 0.25 of 1 percent over its level in the first quarter of 2011. If this 0.25 of 1 percent quarterly growth rate were to continue for four quarters the increase would be 1 percent growth. This is not a notable rate of growth. This 1 percent percent rate of quarterly increase for the second quarter of 2011 is in contrast to the 3.2 percent growth rate in the fourth quarter of 2010 and 1.9 percent in real GDP for the first quarter of 2011. It should be noted that the growth rate in the first quarter of 2010 was 3.7 percent and in the preceding quarter, the fourth quarter of 2009, it had been 5.0 percent. Thus increases in the growth rate are not permanent and trends do not necessarily continue. The growth rate of the economy is volatile. And, while any increases in real GDP are welcome they are not sufficient to reduce the pool of unemployed.

  

  To put the changes in perspective the change in real GDP between 2011I and 2011II was that $8.15 billion more goods and services were produced in the second quarter of 2011 than the first quarter. In the grand scheme of things $8.15 billion is not a big deal. Even when it is put on an annual basis by multiplying by 4 ($32.6 billion) it is not a big deal.

  The Bottom Line

  Business investment is a major component of the demand for U.S. production. The business investors have to have some confidence that the administration is going to abide by law and not carry out a social and economic revolution. When business investors lose that confidence business investment drops like rock heading toward zero producing a recession. Business investors had good reason for lacking confidence in the Obama administration and some reduced their investments in plant, equipment and inventory. That reduction produced the 2009 recession and continues to dampen the economic recovery.

  The reality is that if businesses do not have confidence in a president they will cut back on their investment and thus provoke a recession. There are some who, when faced with this reality, assert that investment should be made by the public sector. For those the following bit of information from Yegor Gaidar, former prime minister of Russia, concerning productive efficiency in the Soviet Union is relevant

  Examples of how inefficient the Soviet economy was are well known. The Soviet Union mined eight times as much iron ore as did the U.S., which it cast into three times as much pig iron, which was processed into twice as much steel. In gross value, it produced about as much machinery from that metal as did the U.S. The U.S.S.R. used 1.6 and 2.1 times as much raw materials and electric power to produce a unit of end output as did the U.S. It took more than ten years to build an industrial enterprise in the U.S.S.R., compared to less than two years in the U.S. In terms of a unit of end output, the U.S.S.R. used 1.8 times as much steel in 1980 as did the U.S., 2.3 times as much cement, 7.6 times as much mineral fertilizer, and 1.5 times as much timber. The U.S.S.R. manufactured 16 times as many grain harvesters as did the U.S., but garnered significantly less grain and depended on grain imports.

  This was after 70 years of operation of state control of the economy.

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